A meeting was held on 16 April’2020 between the Karachi Chamber of Commerce and Industry and the Federal Board of Revenue to discuss the proposals of KCCI for the Federal Budget 2020-21. Siraj Kassam Teli, Chairman-Businessmen Group and Former President KCCI led the KCCI team which included Agha Shahab Ahmed Khan, President-KCCI and Ibrahim Kasumbi, Former SVP and Convener-Budget Standing Committee. The FBR team was headed by Nausheen Javaid Amjad, Chairperson-FBR and participated by Dr. Hamid Ateeq Sarwar Member-IR Policy, Muhammad Javed Ghani, Member-Customs-Policy & Operations, Mohiyuddin Alwi, Chief Secretary, Sales Tax Policy, Mohd. Ali Khan, Secretary-Sales Tax Policy.
At the outset Siraj Kassam Teli presented his felicitations to Nausheen Javaid Amjad for assuming the charge as Chairperson-FBR in these difficult times and wished her success in the discharge of her new responsibilities.
In his address, Siraj Teli stated that entire global community including Pakistan are going through a major economic crisis and recession due to the widespread Covid-19 pandemic. He added that the world around us has changed forever and we are living under a new world order with massive challenges. In these extra-ordinary times, government has to take extra ordinary measures to support trade and industry to ensure their survival so that they can stand on their feet again. Today the primary concern should be survival of economy and not just the revenues.
He said that the impact of this crisis is particularly severe for economies like Pakistan which are already burdened with debt. Trade and Industry in Pakistan is unable to cope with the financial impact of lockdowns to control the pandemic and many businesses are facing bankruptcies.
Therefore, the government should focus on extending support to the trade and industry to ensure their survival. Siraj Teli proposed four immediate measures that government should take which include 1) Basic Policy rates should be brought down by SBP from current 11.25% to 4% across the board. 2) Rates of Utilities including Gas, Electricity and Water should be reduced by 50 percent. 3) Rates of Petroleum Products may be reduced by 50 percent and 4) Rates of Sales Tax, Income Tax/WHT and FED be brought down to half of current rates. He added that these measures may be implemented for at least six months and may be reviewed when the current crisis and pandemic come to an end.
Siraj Teli apprised the Member-IR Policy that there are still snags in the refund process and these should be expedited so that the liquidity problems faced by the industry may be alleviated. Dr. Hamid Ateeq Sarwar assured that the process of refund is being streamlined and cheques of duty drawbacks will be directly delivered to the exporters, and where possible refunds will also be credited directly to their accounts.
He requested the Member IR-Policy to direct the customs officials to expedite clearance of import cargoes as the cabinet has already approved the waiver of demurrage on these consignments which are lying at the port and not cleared due to accrued demurrage charges which have now been waived for 15 days from the date of landing.
Responding to the views expressed by Siraj Teli, Nausheen Javid Amjad, Chairperson-FBR, welcomed the KCCI team in the online meeting led by Siraj Kassam Teli. She expressed her gratitude to the Chairman-BMG for his felicitations and appreciated the KCCI and business community of Karachi for their contribution to the national exchequer. She agreed to the views expressed by Chairman-BMG and assured him of her support for resolution of outstanding issues related to taxation and anomalies. She agreed that in the current changed economic scenario impacted by Covid-19, the taxation policies and upcoming Federal Budget will have to be formulated to help the trade and industry to deal with new challenges.
In his remarks, Agha Shahab Ahmed Khan, President-KCCI thanked the Chairperson-FBR Nausheen Javaid Amjad and the FBR team for taking out the time to have a meeting with KCCI team to discuss the budget proposals. President KCCI said that the dynamics of business will change drastically in the near future due to the changed global scenario and adverse effects of Covid-19. It is no more feasible to operate within the established policy framework and out-of-box thinking and solutions are required.
Initiating the discussion on KCCI’s budget proposals Ibrahim Kasumbi, took up the issues related to Sales Tax, Income Tax, Customs and FED, besides the major anomalies and discretionary powers that exist in the tax regime. Dr. Hamid Ateeq Sarwar, Member-IR Policy gave his comments and apprised of the actions to be taken by FBR with regard to each proposal, which are stated here:
● KCCI proposed to withdraw 3% Further Tax on local sales to unregistered buyers, which initially was 1% imposed through Finance Act’2013. Member-FBR IR Policy stated that proposal is under consideration to reduce the rate to 1% instead of 3% in the FY 2020-21 and zero percent in the next fiscal year. Moreover, KCCI had proposed that where the CNIC number is provided by supplier for sales to unregistered persons, 3% Further Tax should not be charged. Member-IR Policy endorsed the proposal and said that the rate of 3% Further Tax will be reduced to 1% in FY 2020-21 and will be phased out next year.
● He said that subject to provision of detailed data regarding Paper Converter Industry, the FBR will consider to reduce the Value Addition Tax from 10% to 5% of the basic Sales Tax.
● While the KCCI had proposed reduction in Sales Tax from 17% to Single digit. Member IR-Policy agreed that FBR will review the rate and recommend to rationalize the same in the budget 2020-21. He further added that other relief measures in Sales Tax and other levies are under consideration during the prevailing crisis situation due to Covid-19, which are outside the scope of Federal Budget 2020-21. These relief measures will be revisited in January’2021 again and decisions will be made in accordance with the situation at that time. He said that the proposals forwarded to the Prime Minister by Siraj Kassam Teli, Chairman BMG are also being taken into consideration while working on the relief packages.
● Member IR-Policy apprised the KCCI team that the system is being automated and rules are being amended to allow the registered persons to revise the Sales Tax Return online and rectify clerical errors under Rule. 14a without the need to get prior approval from Commissioner-Inland Revenue, in response to the proposal submitted by KCCI.
● KCCI had proposed that audit of tax-payers should not be conducted more than once in three years and the discretionary powers of the commissioners to open the audits other than established criteria should be withdrawn. Member-IR Policy stated that FBR has limitations under the FATF to put limitations on audit and cannot exempt anyone from audits. Member-IR Policy however asked the KCCI team to provide feedback and propose solutions to counter the harassment and misuse of powers to conduct multiple audits.
● Commenting on KCCIs proposal to reduce the time period for retention of records from 6 years to 3 years, Member IR Policy said that in certain cases where refunds are admissible or pending it is necessary to retain records for more than 3 years. Ibrahim Kasumbi said that in such cases a separate regime for such exporters may be created because majority of tax-payers do not fall in the category of exporters or not entitled to refunds.
● KCCI had raised the issue of Tax Credit not being allowed on procurement of building materials and accessories under section 8 (1) H & I of Sales Tax Act, as amended through Finance Act’2014. Member IR-Policy commented that any purchases by end-user cannot be entitled to input tax against Sales Tax liability. Hence the FBR is unable to accept the proposal at this time. Instead proposal is under consideration to shift the construction related tax policies within the purview of provinces.
● KCCI had highlighted an anomaly in classification of LED lights/bulb housing which are incorrectly classified HS Code 9405.1090 which pertains to complete Chandeliers and subject to a higher rate of duty. Member IR-Policy asked the KCCI team to furnish more details explaining the anomaly so that the same may be rectified.
● In response to the proposals by KCCI to curtail the powers of IR officials and field formations under Sections 37, 37A, 37B, 38 and 45B which are a source of harassment to the industries, Member-IR Policy assured the team that a reforms have been undertaken where the human interface is minimized and checks and balances are being introduced to curtail abuse of these provisions. In this regard the FBR will hold consultations share draft rules with stake holders including the KCCI to provide input to prevent misuse of such powers and ensure accountability of concerned officers.
● Commenting of the proposal of KCCI to rationalize Sales Tax and Further Tax on Dairy products, including Flavored Milk, Yogurt, Cheese and Butter etc. the Member-IR Policy apprised that Further Tax will be reduced to 1% in FY2020-21 and will be phased out in next fiscal year.
● Responding to the proposal to restore 10% Tax Credit allowed where 90% of sales are made to registered persons, the Member IR stated that FBR is under constraint from IMF not to allow Tax Credits, yet he assured that in the current scenario of Covid-19, FBR will endeavor to restore the said tax credit provision.
● Under Section 153 (a) With-holding tax at the rate of 4.0% to 4.5% is deducted on supply of goods by filer companies and registered persons respectively. This is a very high rate of WHT and KCCI proposed to reduce the rate to 1%. Member IR-Policy assured that the rate of WHT on local supply of goods will be rationalized as proposed.
● KCCI had raised the issue of discretionary powers given to the Directorate of Intelligence and Investigation vide SRO.1301 (I)/2019 dated 29.10.2018 whereby officers of the level of Assistant Director can raid premises, conduct audits, confiscate records and conduct criminal investigations. Such powers are prone to serious abuse and should be withdrawn. Member Policy explained that it is part of the anti-smuggling measures and such powers are not applicable to domestic trade. Government is aiming to further strengthen the anti-smuggling measures through an ordinance which may be issued soon. He suggested to KCCI team to propose ways and means to prevent abuse of the powers under SRO.1301 so that apprehensions of business community can be removed.
● It was submitted by KCCI that rates of With-Holding Tax on import of raw materials by Commercial Importers and manufacturers have vast disparity which results in misuse of exemption by unscrupulous persons. Many fake entities have been registered as manufacturer to take advantage of exemption under Rule 72B, Part IV of second schedule of Income Tax Ordinance. Therefore, uniform rates of WHT may be applied on both categories of importers of raw material. Member-IR policy agreed to the proposal and assured that the same would be adopted in Budget 2020-21.
● Vide SRO.1190 (I) /2019, FBR had restricted adjustment of input tax to 90% on import by commercial importers, which has created anomaly and importers of raw material have to pay additional 1.7%. KCCI contended that since commercial importers do not add any value, the restriction on 100% is unjustified. Member-IR Policy agreed to allow adjustability of additional 1.7% paid by the importers with tax returns.
● Due to inclusion of Automobile and Motorcycle spare parts in Third Schedule, the importers are facing serious hardships in printing of MRP (Maximum Retail Price) on the auto parts due to various factors. KCCI had elaborated on the handicaps in complying to such requirement and proposed to the FBR to exclude the Automobile and Motorcycle parts from Third Schedule and treat the same under normal import regime. Member-IR Policy stated that certain facilitations have been given to the importers however the FBR will review the policy in consultation with stake-holders.
● KCCI team submitted that through an amendment in SRO.190 (I)/2002 through Finance Act’2019 entries relating to PVC and PMC materials were deleted, thereby allowing Zero rating on export of Polyethylene and Polypropylene. The provision has opened up an avenue for evasion and misuse because Pakistan does not have capacity to manufacture Polyethylene or Polypropylene. KCCI recommended that the entries related to Polyethylene and Polypropylene may be inserted in the list of exclusions from zero rating in SRO.190 (I)/2002. Member IR-Policy apprised the KCCI team that the said measure was taken on the recommendation of the Ministry of Commerce and KCCI should raise the issue with the ministry to seek redress.
● KCCI had proposed to withdraw exemption in With-Holding Tax under section 148 (7) D to Large import Houses in the Budget 2020-21 which was agreed by Member IR-Policy.
● Responding to the proposal regarding Section 108 B, whereby the commission paid by supplier to the unregistered dealer will not be allowed as expense with effect from FY 2020-21. Member-IR Policy suggested to further discuss the issue through a representation so that the provision may be withdrawn.
● In response to the proposal to waive requirement of CNIC number from customers on purchases of Gold Jewelry above the amount of Rs. 50,000/-, Member IR-Policy stated that strict limitations have been imposed under FATF and more details and undertaking are required from buyers/suppliers of gold. He suggested that representatives of Jewelry trade may hold a meeting over video link with the FBR to evolve workable solutions. In this regard KCCI will facilitate the representatives of Jewelry trade to present their views and propose workable solutions to their issues.
● By amendment in section 148 through Finance Bill 2018-19, With-Holding Tax of 4.5 to 6.0% on commercial importers was converted into Minimum Tax which earlier was a Fixed Tax. KCCI had proposed to either reduce the Tax rate or treat it as Fixed Tax as before. Member IR-Policy agreed that the rate of WHT will be rationalized in upcoming budget 2020-21 but maintained as minimum tax.
● Issues related to multiple audits under various provisions of Income Tax Ordinance, Sales Tax Act and Federal Excise Act, were raised by KCCI. The multiple audits were a cause of stress and harassment to tax payers. KCCI proposed that all provisions for Audit may be consolidated and clear parameters be set. Member IR-Policy advised that FBR is working to create a common pool and procedure to conduct consolidated audit for Sales Tax, Income Tax and FED to eliminate multiple audits.
● Commenting on KCCIs proposal to restore the provision of Tax Credit on investment under section 65B of ITO, Member-IR Policy stated that under the IMF program, FBR has limitations on allowing tax credit.
● KCCI had proposed that the Sales Tax at the rate of 17% on import of industrial machinery is extremely high and unjust. Ultimately all machinery is utilized for manufacturing process and contributes to GDP and generates employment. Member IR-Policy agreed to the proposal and said that the rates will be revised in slabs of 10%, 5% and 1% according to various categories of machinery.
● Under present laws, payments collected by travel agents from clients on behalf of the airlines is treated as turnover of travel agents and is charged with 8% turnover tax which is unjust. KCCI had proposed that only the margin of travel agents in gross receipts may be treated as turnover and charged with minimum tax. Member IR-Policy agreed to the proposal and suggested that the representatives of travel agents may hold a meeting with FBR and provide all required information and data so as to enable the FBR to prepare budget recommendation.
● KCCI in its proposals raised the issue of very complex Income Tax return form and proposed that the form may be simplified to make it easier for the tax-payers to complete. It was proposed that separate forms may be designed for Companies, AOPs and individuals/sole proprietors, to facilitate the tax-payers. Member IR-Policy agreed to the proposal and assured that simplified forms will be issued for different categories of tax-payers.
● Provision of WHT under sections 236 G and H of Income Tax Ordinance are being unjustly applied on Beverages which fall under the category of FMCG. KCCI proposed to exclude the beverages from the scope of Sec.236 G & H, which was agreed by Member IR-Policy.
The meeting was held in a cordial environment and various decisions were taken which will be incorporated in the Federal Budget for the FY 2020. Various other proposals pertaining to Customs and FED have been submitted to Federal Board of Revenue which remain to be discussed and will be taken up with FBR in a follow up meeting.